Advice?

The problem here is that all these questions are the type of question where you cannot know the answer at the time you need to know the answer in order to take advantage of the knowledge. The best overall strategy that seems to work for the most people is buy and hold, then rebalance as needed to meet your goals. Any shift in that now would be more or less trying to time the market, which never seems to work over the long haul.

If you do have a long time horizon, being at the absolute bottom really doesn't matter that much. Maybe we are within 5% or 10%, or maybe it is 25%. What does matter is getting in, and not missing what might be the next big bull market.

The other item that matters is your own personal economy. You need to be in a position where you can weather a storm, such as multiple job loss, without losing your house. That means being low on debt, not having luxury cars that have a monthly payment, and having some cash reserves. It doesn't matter what the economy as a whole is doing if you are losing your home or are so deep in debt that you cannot see past your eye balls.

-john-

No one knows if US stock markets are hovering around the bottom. If someone says otherwise, they are not to be believed. The question is very difficult.

A much easier question to answer is whether it is priced cheaply. My own answer is that it is priced cheaply, cheaper than bonds. At this price, if you have time and money, the likelihood of losing money over, say, 10 years would be minimal.

I do not believe in dollar cost averaging, which is a complete fallacy. (investing money "as they come from paycheck" is not dollar cost averaging).

Personally, I and my spouse had our 401K money in cash prior to this debacle. So we have not lost much money in our pension funds through October.

Now, with the stocks so cheap, we put all our 401k money into stocks. We also have a UTMA account for out older son, which I also converted into stocks around the end of October.

If the dividend yield on the stockmarket exceeds Treasury bond yields, with the appreciation potential (retained earnings and buybacks) being the icing on the cake, it is very hard to justify not being in stocks.

Put in other words, your risk of losing money on investments is higher in proportion of how much you pay. The risk of losing money with stocks priced at 8 times P/E is a lot less than if you paid twice that amount.

i

the worst is yet to come?

intervals to ensure dollar cost averaging be a wise move?

Look at all the major financial institutions that would have crashed and burned except for the government bailouts. Logging on to your account could be really scary. URL not found is the saddest message. What if there is no bail out next time?

The basic question is whether you want to be in dollar denominated assets. There could easily be a future where gold is $10,000 an ounce, nothing special houses cost $1 million dollars, the DOW is at

50,000 and breakfast at McDonalds is $50. Have you made money?

Dollar cost averaging only works if prices go down and then up (it doesn?t work if prices just go up or just go down or go up and then down). If you are assuming this is the correct strategy, wait and buy at the bottom

Commodities (gold, silver, oil and others), international stocks and real estate are non-dollar denominated assets. They only turn into dollars when you sell them.

Fear and Greed will continue to have a major impact on prices from day to day:

the worst is yet to come?

intervals to ensure dollar cost averaging be a wise move?

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Who knows. No one can predict with any certainly short term market movements. I do know that stock market valuation has dramatically lowered to a level where I personally would consider buying in.

Compared to what? Dumping a lump sum in the market based on a guess? Timing is the fallacy.

Investing money in stocks regularly from each paycheck is known in many circles as one form of DCA.

I know you and I disagree on this. Just noting it for the thread.

If you assume that the market returns are greater than returns from bonds, on average, then yes, putting all available money into the market would be superior to investing it in pieces.

The wikipedia article discusses this question to some extent.

Yes. I do believe in "market pricing", as opposed to market timing, which is that it is better to buy when stocks are cheap and, specifically, not to buy when stocks are too expensive. This amounts to changing one's mind once every 10 to 15 years.

We cannot say if stocks ar cheap. Many people compare today's prices with last year's prices, but why use last year's prices to compare today's prices? This is the gambler's fallacy. When you flip a coin and get 5 heads many people think that a tail is more likely ot come. But this is false because each flip is an independent event. If we assume that stocks are traded in an efficient market, then all information is incorporated into the price and the price resembles a random walk. Just because it is heading down, it doesn't mean it is more likely to go up. Rather, it may fall even further down.

I am starting to wonder whether the stock market will ever go up. I think that today we have very complex structure securities that enable investors to adjust leverage using options, swaps, etc. This means that even if there is a slight upward movement in the market, the knowledgeable investor can take advantage of this knowledge and profit. If it is true that stock markets go up in the long run, then someone will leverage infinitely and take advantage of this profit opportunity, which gets rid of the opportunity.

If you don't know what to do, just keep your money in cash.

By the historical measure of P/E they are very cheap. For 1871 to the present, the S&P 500's average is about 15. Today it is about 11.

You are using numerology to explain stock movements. A person should rely instead only on his/her understanding of what economies do in the long run instead. Do populatons grow? Does technology increase so that the ostensible quality of life rises? If a person thinks the answer to these questions is yes and wants to invest for the long run, stocks may be a good choice.

If a person is not interested in the long run, then he/she should not buy stocks.

intervals to ensure dollar cost averaging be a wise move?

If your time horizon is ten years or longer, and if you can stomach a volatile market during this time, then stocks make sense IMO.

But remember: Studies show that the best investing strategy is to hold a good job, live within your means, and save regularly. Getting rich quick is a gambler's mentality relying on much luck to get ahead.

Try to compare stocks with Treasuries. You will see that the divident yield on stocks exceeds yield on treasuries. Plus, stocks come with additional benefits such as companies repurchasing shares, and reinvesting retained earnings, which is not something you can get from Treasuries.

Instead of all of this, just look at prices. Then you can see that they are cheap. That still does not tell you whether stocks will go up or down next month, but it tells you that they are worth owning regardless of that.

A lot of people tried to leverage infinitely. They usually end up in bankruptcy court.

That's always a good suggestion.

Isn't PE numerology too? ;-)

Does the system that assigns values to goods and services have any rational meaning?

Yes we can.

No not with prices, but with valuation.

No it's not.

intervals to ensure dollar cost averaging be a wise move?

that's not an "investing" strategy.

So, "This Time It's Different"?

Brian

Yes, there are many good buys out there.

Financially weak companies may still fail, but the rest will be OK.

Buy stock in companies with good financials and growth possibilities and sell out of the money calls on it.

intervals to ensure dollar cost averaging be a wise move?

Market indexes tend to have many companies with poor financials.

Buy ETF commodities like GLD and sell out of the money calls against it.

-- Ron

Buy stock. If it goes up, sell it. If it doesn't go up, don't buy it.

(I believe Mark Twain said this first.)

-HW "Skip" Weldon Columbia, SC

"Past performance is not a guarantee of future returns."

Isn't that exactly what you are doing here though? Just because past P/E average is about 15 doesn't guarantee that it will ever move above 11.

I agree with the conclusion. Not because of the aforementioned probabilities of independent events, but because looking around its easy to see that company earnings are cliff diving -- stores closing, mall vacancies, impending layoffs which will further reduce consumption...

It will be some time before money printing hits the masses and inflation can actually cause prices/profits to rise enough so that current stock prices are justified. Therefore I think that stocks prices could see significant downward pressure. I'm not trying to make predictions for anyone else, but in the absence of new information, I'm not getting into the market.

The problem here is the whole conventional wisdom "buy and hold" mantra. If you didn't understand what to do and picked up a random book on financial planning, you'd think the best strategy was to buy and hold stocks forever (forever being some large year). It used to be that if you didn't need the money for 5 years, you should be invested in stocks. But that has proven to be wrong this time.

I do not know what to do, and so I'm sitting in cash. However, I fear the possibility that the cash itself may become worthless...

Anoop